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TimeValue Software Blog

APR Calculations for Commercial Financing Disclosure Laws

By Martel Pellerin

Multiple states have passed regulations for commercial financing disclosure laws that will require an Annual Percentage Rate (APR) similar to the Regulation Z (Reg Z), Truth in Lending Act for consumer loans that is computed in TValue amortization software. The APR is a standardized way to express the total cost of credit, including both interest and fees, as a single percentage rate. By requiring commercial lenders to disclose APRs, these state regulations will help businesses understand the true cost of borrowing and make more informed decisions about their financing options.

California was first to require this disclosure and New York also has passed it. The California Department of Financial Protection and Innovation’s (DFPI) regulation requires providers of commercial financing to provide recipients with APR disclosures effective December 9, 2022.

The regulation addresses seven categories of commercial financing transactions: closed-end transactions, commercial open-end credit plans, factoring transactions, sales-based financing, lease financing transactions, asset-based lending transactions, and commercial financing transactions that do not fit within one of the other six categories.

Similarly, the New York State Department of Financial Services (DFS) adopted final regulations which require providers of commercial financing, including term loans, revolving lines of credit, leases, and more, to provide recipients with APR disclosures. The final regulations became effective February 1, 2023 and provide for a six-month grace period to comply. Comparable disclosure requirements are also underway in at least six other states.

TValue does the APR calculation per Reg Z. If a loan has regular payments with the same compound period and there are no points or fees, the APR will usually be the same as the nominal annual rate. The two rates tend to differ from each other when there are points and fees, stub periods, day-based compounding, or U.S. Rule amortization. Appendix J to Regulation Z provides a wide variety of examples of consumer loans. TValue reproduces these official results exactly in almost all of the official examples and within established tolerances for the rest. This means that TValue can provide accurate and reliable APR calculations for a wide range of loans and financing arrangements, giving businesses the information they need to make informed decisions about their borrowing options.

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